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A Value Proposition for U.S Mobile Payment Adopters

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More than one-quarter of U.S. smartphone owners indicate they would be “extremely likely” or “very likely” to use mobile payment during the next year if new technology was available that enabled …

More than one-quarter of U.S. smartphone owners indicate they would be “extremely likely” or “very likely” to use mobile payment during the next year if new technology was available that enabled payment through a contactless reader at point-of-sale. That translates into an estimated 17 million plus consumers who are prepared to exchange their cash-and-card-laden wallets for a different payment method. Smartphone owners who are likely adopters of mobile payments differ in significant ways the general population of smartphone owners.

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  • 1. A Value Proposition for U.S. Mobile Payment AdoptersConsumer Insights BriefJune 2011Paul McAdam, SVP of Research and Thought Leadership, FISMandy Putnam, Director of Research and Thought Leadership, FISwww.fisglobal.com
  • 2. A Value Proposition for U.S. Mobile Payment AdoptersSeparating the Innovators from the differ in significant ways from those who have no interest in using mobile technology to conductLaggards payments.More than one-quarter of U.S. smartphone owners 1) Having used one’s smartphone to makeindicate they would be “extremely likely” or “verylikely” to use mobile payment during the next year online purchases in the past 30 days is theif new technology was available that enabled number-one predictor of whether someonepayment through a contactless reader at point-of- is interested in making purchases at point-sale (Figure 1). That translates into an estimated 17 of-sale (POS) with a smartphone (Figure 2).million plus consumers who are prepared to Likely adopters of mobile payment haveexchange their cash-and-card-laden wallets for a already connected purchasing with theirdifferent payment method1. smartphone; mobile payment at POS simplyFigure 1: Likelihood of Mobile Payment during the extends the connection from online toNext Year among Smartphone Owners “bricks and mortar” purchasing. More than half (55%) of likely mobile payment users have made an online purchase with their smartphone within the last 30 days. Unlikely Figure 2: Made Online Purchase with Smartphone Likely by Mobile Payment Likelihood 27%* 30% 68% 55%* 43% Neutral 38% 43% 22% 23% 19% 18% 15%* Read as: 27% of smartphone owners are extremely or verylikely to use mobile payment during the next year Likely Neutral Unlikely Yes, within the last 30 daysSmartphone ownership continues to enjoy double-digit growth and, as a result of expanding the base Yes, but NOT within the last 30 daysof smartphone owners, today’s owners are a morediverse group of consumers. Some are highly I have never made an online purchase using thisinterested in using mobile payment and some are devicereluctant to adopt the technology. Smartphone * Read as: 55% of likely users of mobile payment made an onlineowners who are likely adopters of mobile payments purchase with their smartphone within the last 30 days 1© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 3. A Value Proposition for U.S. Mobile Payment Adopters 2) The next-most-significant predictor of 3) Internet usage on one’s smartphone also mobile payment adoption at POS is usage of has an impact on adoption likelihood. More mobile bill payment (Figure 3). Thirty-eight than nine out of 10 likely adopters access percent of likely adopters have paid bills the Internet on their smartphones with their smartphones in the last 30 days; frequently vs. one-half (51%) of likely conversely, only four percent of consumers laggards (Figure 4). The two-top indicators who are likely laggards (unlikely to adopt) of whether one is a likely laggard are: 1) have used mobile bill payment in the last 30 lack of mobile purchasing history and 2) lack days. If consumers make purchases online of frequent Internet connection on one’s (number-one predictor) and pay bills with smartphone. Smartphone owners who fit their smartphones (number-two predictor), both criteria have a nearly 90% chance of their chance of being a likely adopter of being in the likely laggard segment. Plus, mobile payment soars to 94%. smartphone owners who fit this profile and also don’t use apps have a 94% chance ofFigure 3: Paid Any Bills with Smartphone in Past 30 being in the likely laggard segment.Days by Mobile Payment Likelihood Figure 4: Mobile Internet Usage by Mobile 38%* Payment Likelihood I have Internet access on 91%* my mobile phone, and I 78% use it frequently 51% 18% I have Internet access on 8% my mobile phone, but I 18% dont use it very often 33% 4% I have Internet access on 1% my mobile phone, but I 3% Likely Neutral Unlikely never use it 12% Likely * Read as: 38% of likely mobile payment users paid at least one bill I do not have Internet 1% with their smartphone in the past 30 days access on my mobile 1% Neutral phone 4% Unlikely * Read as: 91% of likely mobile payment users have Internet access on their phones and use it frequently 2 © 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 4. A Value Proposition for U.S. Mobile Payment Adopters 4) Two factors — accessing the Internet Evaluating the Perceived Benefits frequently on one’s mobile phone and using social networking sites (specifically, Reducing the credit/debit card count in one’s wallet YouTube) — shift the probability of is the top benefit of mobile payment regardless of consumers who have never made an online segment — likely adopter, neutral or likely laggard — and points out how critical it will be for a bank purchase with their smartphones from card to be “top of wallet” for mobile payments in being likely laggards into being more the future as card counts shrink (Figure 6). receptive to the proposition of mobile Shortening checkout time, not needing to carry cash payment. (fewer ATM trips) and tracking one’s purchases are secondary benefits. Just one-quarter of likely 5) Accessing the Internet frequently via phone, adopters associate mobile payment with better using social networking sites and mobile control over spending and only 18% think that a mobile wallet could be more secure than other purchasing and bill paying — all linked to payment methods. greater likelihood of mobile payment adoption — are behaviors demonstrated Figure 6: Perceived Benefits of Mobile Payment more often by younger generations. Nearly by Mobile Payment Likelihood nine out of 10 (87%) likely adopters of mobile payment are members of either Gen Not have to carry 59%* credit/debit cards 48% Y or Gen X (Figure 5). 24% Figure 5: Likely to Use Mobile Payment in Next Shorten time at store 44% checking register 34% Year by Generation 14% Baby Mature Not have to carry cash 42% Boomer 3% 36% 21% 10% Help me keep track of my 41% purchases 28% 8% Not have to carry 26% checkbook 22% Gen Y 13% Gen X 52% 25% Help me to better control 35%* my spending 14% Likely 3% Neutral More secure than other 18% Unlikely payment methods 11% 2% No benefits 2% No benefits 14% * Read as: 35% of likely mobile payment users are 59% members of Gen X (born 1965 − 1979) * Read as: 59% of likely adopters cite “would not have to carry credit/debit cards” as a benefit of mobile payment 3© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 5. A Value Proposition for U.S. Mobile Payment AdoptersDiverging Opinions about Drawbacks Although payment security concerns will be an obstacle to mobile payment diffusion, it’s not theLikely adopters’ concerns about mobile payment top priority among consumers who will initiallydiffer from those who are unlikely to adopt (Figure adopt mobile payment. Their key requirement is7). Likely adopters are more concerned about maintenance of connections and perks withwhether their favorite retailers will have readers for payment cards and retailers that are in their choicemobile payment (61%) and if they will retain their sets. These observations underscore the critical roleloyalty points (34%) than they are about security that merchants — especially retailers that Gen Y(29%). In sharp contrast, likely laggards cite comfort and Gen X patronize — play in the mobile paymentwith their current payment methods (50%) and adoption process.concern that mobile payment is less secure thanother payment methods (45%) as top reasons that Fighting for Mobile Payment Turfwould prevent them from becoming users. Realizing the need to plant a stake in the groundFigure 7: Main Reasons Preventing soon, stakeholders are piloting mobile paymentUse of Mobile Payment solutions. Most of these solutions reflect various stakeholder segments’ interests instead of creating Stores where I like to shop 61%* a consumer-centric solution; but, the consumer, in might not have readers 40% the long run, will define the mobile payment 17% ecosystem. Might not get points for 34% using my credit/debit cards 19% 9% 1) Merchants are resistant to upgrading their 29% POS terminals to accommodate NFC mobile Would be less secure than other payment methods 32% payments given the high cost and little 45% incentive, so far, from the stakeholders that Would still have to carry 24% 18% are seeking to benefit from NFC mobile identification 10% Likely payments. In testing the NFC-alternative 2D Would still have to carry 21% bar code technology, Starbucks and a few 16% Neutral loyalty cards 4% others have planted a temporary stake in Unlikely the ground. The technology could make Would be too easy to lose 20% 18% track of how much I spend 14% their customers “stickier”—a common goal among retailers—but it doesn’t relieve Would rather use payment 14% methods 31% much bulk in their customers’ wallets with 50% the exception of the Starbucks loyalty card.I only use my mobile device 7% 12% The consumer value proposition associated for calls and/or email 21% with this technology is difficult toI dont see the value in using 6% demonstrate to consumers outside of the it for payments 14% 30% sphere of those who have a high degree of * Read as: 61% of likely mobile payment users cite “stores affinity for Starbucks. where I like to shop might not have readers” as a reason preventing usage 4© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 6. A Value Proposition for U.S. Mobile Payment Adopters 2) Seeking new sources of revenue growth, 4) As the stakeholder segment in charge of the mobile network operators (MNOs) have consumer-side technology, smartphone billing structures in place for mobile manufacturers will look for alliances that payment but are unlikely to assume provide them with some way to profit from material credit risk beyond the scope of installing NFC chips in their phones. For their businesses (and an occasional $10 example, Google is partnering with donation to a relief fund charged to Citigroup, VeriFone (terminal customers’ accounts). However, new debit manufacturer), and MasterCard to offer card regulations are thwarting attempts by contactless payment on their Android MNOs to compete profitably in payments devices. Reports state that Google’s interest processing. The Isis joint venture among is in obtaining data to help drive Google’s AT&T, T-Mobile and Verizon is now seeking advertising revenue rather than getting a to work with Visa and MasterCard versus piece of transaction fees2. This proposition building a separate network with Discover would appeal to merchants since Financial Services as its payments partner. transaction fees are viewed as inequitable Partnerships with established brands would by many merchants. mitigate the challenge Isis faced in convincing consumers to trade their cards 5) Alternatives also will shape the long-term in for an Isis-branded prepaid, debit or mobile payment ecosystem. The recent credit card. But, success still depends on acquisition of Fig Card by eBay-owned merchants’ willingness to foot the bill for PayPal supports PayPal’s vision to drive installing NFC-enabled terminals. payment innovation. Fig Card technology provides a no-cost solution for smartphones 3) Looking to preserve as much payment and a low-cost merchant solution, which revenue as possible, financial institutions enables mobile payment via a USB device and major card networks are attached to the existing POS system. experimenting with alternative technologies that would bypass the MNOs. Short-term 6) Dwolla, the online, location-based, social traction via NFC microSC solutions would be and mobile payment platform, which gained until NFC-embedded phones are includes FiSync technology, takes a different widely available2. This “stop-gap” solution approach from PayPal of collaboration vs. would rely on consumers to take their competition with financial institutions; but, phone someplace—unlikely to be the MNO like PayPal, Dwolla offers a no-cost solution that financial institutions are trying to for smartphones and a low-cost solution for bypass—to have a chip installed. merchants. Dwolla’s Spots payment platform allows consumers to pay for 5© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 7. A Value Proposition for U.S. Mobile Payment Adopters products or services by clicking on a locator mitigating the risk for retailers of updating pin from a map of retailers displayed on the their POS systems with a solution, which smartphone thereby saving merchants could become obsolete and 2) eliminating money — 25 cents per transaction versus the need for smartphone owners to take “swipe” fees charged by credit card their phone somewhere to make it NFC companies. Its technology partnership with compatible. The Members Group allows financial Figure 8: Operating System of Smartphone institutions to integrate the Dwolla Owners by Mobile Payment Likelihood payment platform and its technologies into 37%* their existing systems to provide visibility 34% 32% into customers’ spending habits and 28% potentially faster settlement. 24% 24% 24% 24% 18%Despite the current turf battles and otherchallenges, industry reports estimate that there are70 million contactless devices—mostly cards—and150,000 contactless merchant terminals in the U.S. 3Long term, the mobile payment solution that isconsumer-centric—the one that addresses Android Apple iPhone BlackBerryconsumers’ greatest needs and concerns—will gainthe most market traction. Likely Neutral Unlikely * Read as: 37% of likely mobile payment users areInfluencing the Mobile Payment Turf Android ownersBattle 2) Credit cards and retailers. Three-quartersThe future mobile payment ecosystem will likely be (76%) of likely adopters have a loan balanceshaped by current relationships initial adopters on a major credit card, which is above thehave with various stakeholder segments. percentage of likely laggards. Moreover, 61% of likely adopters have a loan balance 1) Smartphones. Two-thirds (65%) of likely for a store-branded credit card — much adopters own either an Android or an higher than the percentages of segments iPhone versus one-half of likely laggards that are less likely to adopt mobile (Figure 8). Installation of NFC chips in payment. This higher usage of retail credit Androids and iPhones would facilitate points out a strong connection between penetration of mobile payment in two likely adopters and merchants (Figure 9). important ways: 1) establishing NFC as the future format for mobile payment thereby 6© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 8. A Value Proposition for U.S. Mobile Payment Adopters Financial institutions. Among smartphone owners, Figure 10: Used Smartphone in Past 30 Days to Figure 10: Used Smartphone in Past 30 two-thirds (69%) of likely adopters versus nearly Perform Financial Transactions by Mobile Days to Perform Financial Transactions one-half (46%) of those who are neutral about Payment Likelihood by Mobile Payment Likelihood mobile payments and about one-quarter (23%) of likely laggards have participated in mobile banking Checked balances in 62%* during the past 30 days. The largest percentages of checking/deposit account 41% 20% likely adopters are using their smartphones to perform simple banking tasks such as checking their Looked at checking/deposit 44% transaction activity or 25% balances and their transaction activity (Figure 10). monthly statements 10% Transferred funds between 30% accounts at my bank 16%Figure 9: Have Outstanding Balances on 5%Credit Cards by Mobile Payment Likelihood Accessed credit card or 24% loan account information 14% 2% 76% 24% Major credit cards Checked loan/bill payment (Visa, MasterCard, due dates 13% 66% 2% Discover, American Likely Express) Transferred money from 19% Read as: 76% of likely mobile payment users have 70% my account to another 11% major credit cards person or organization 1% Neutral Accessed/made transaction 17% in investment accounts 8% Unlikely 61% <1% Store-branded Likely 49% credit cards Neutral * Read as: 62% of likely mobile payment users have used their 44% smartphone to check balances in their checking/deposit Unlikely account Likely users of mobile payment are nearly three* Read as: 76% of likely mobile payment users have times as likely to have downloaded a banking app tomajor credit cards their phones (62%) as likely laggards (22%). Usage of other popular apps also shows a large disparity regarding downloads of shopping and P2P payment apps between likely users and likely laggards (Figure 11). 7 © 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 9. A Value Proposition for U.S. Mobile Payment Adopters Figure 11: Top 10 Apps among Likely Mobile Conclusion Payment by Users by Mobile Payment Likelihood 81%* The mobile payment ecosystem will ultimately be Games 71% shaped by a value proposition that resonates with 70% consumers and offers them a reason to shift from 76% current payment methods. Although a sizable Social Networking 64% 53% segment of consumers is open to mobile payment adoption, lack of merchant enthusiasm and Entertainment / 69% 59% willingness to make large investments in reader Music 49% technology represent major roadblocks to 63% penetration, especially in the U.S. where payment News & Weather 51% choices are abundant. 52% 62% Early adopters will need a reason beyond Banking 43% 22% exchanging their current credit or debit cards for a mobile wallet to switch payment methods. They will 58% Communication 47% likely face years of reliance on cards, while adoption 35% is gaining traction but lacks sufficient mass market 57% appeal for a large number of retailers to rationalize Navigation 45% the cost of new reader installation. Superior 43% security via mobile payment represents a 45% potentially more salient benefit to consumers Shopping 24% 16% during the early part of the diffusion process. Likely Though security risk is not perceived as an 40% P2P Payment 22% impediment by likely adopters, superior security 10% Neutral could be coupled with the benefit of reducing time 40% at POS and wallet bulk to build a stronger value Photography 27% proposition for adoption across a broader group of 20% Unlikely smartphone owners. *Read as: 81% of likely mobile payment users have downloaded game apps 8© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
  • 10. A Value Proposition for U.S. Mobile Payment AdoptersCitations:1 The Nielsen Company. “Q2 Mobile Media Marketplace.” 20102 Javelin Strategy & Research. “Mobile Wallets: With the New Mobile Network Operator Joint Venture Isis, areCards and Cash Ready to Go Mobile in 2011?” January 2011.3 Darin Contini and Marianne Crowe, Federal Research Bank of Boston, Cynthia Merritt and Richard Oliver,Federal Reserve Bank of Atlanta, and Steve Mott, BetterBuyDesign. “Mobile Payments in the United States:Mapping Out the Road Ahead.” March 25, 2011.About the ResearchA Value Proposition for Mobile Payment Adopters in the U.S. is part of a series of Consumer Insight Briefs basedon primary research conducted by FIS Enterprise Strategy. The research findings herein are based on a 60-question, online survey completed by about 4,000 U.S. mobile phone owners in February 2011. The survey wasfielded by FIS Enterprise Strategy to a consumer panel maintained by Survey Sampling International.The definitions of age generation used in our analysis are the standard U.S. Census Bureau definitions: Gen Y,born in 1980 or later (in this survey of adults, born from 1980 – 1993; Gen X, born from 1965 – 1979; BabyBoomer, born from 1946 – 1964; Mature, born in 1945 or earlier.The study’s primary objective was to determine the impact of mobile devices on behaviors related to financialtransactions, including accessing accounts, paying bills, depositing checks and making purchases.About FISFIS delivers banking and payments technologies to more than 14,000 financial institutions and businesses inover 100 countries worldwide. FIS provides financial institution core processing, and card issuer and transactionprocessing services, including the NYCE® Network. FIS maintains processing and technology relationships with 40of the top 50 global banks, including 9 of the top 10. FIS is a member of Standard and Poors (S&P) 500 ® Indexand consistently holds a leading ranking in the annual FinTech 100 rankings. Headquartered in Jacksonville,Florida, FIS employs more than 30,000 on a global basis. FIS is listed on the New York Stock Exchange under the“FIS” ticker symbol. For more information about FIS see www.fisglobal.com.A Value Proposition for U.S. Mobile Payment Adopters was authored by Paul McAdam, SVP of Research andThought Leadership at FIS and Mandy Putnam, Director of Research and Thought Leadership at FIS.Please contact the authors if you have questions about the research or how the results apply to your financialinstitution.Paul McAdamPh: 708.449.7743paul.mcadam@fisglobal.comMandy PutnamPh: 614.414.4207mandy.putnam@fisglobal.com 9© 2011 Fidelity National Information Services, Inc. and its subsidiaries.